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Buyers Blog Update 1/25/2021

Mortgage Pre-Approval
 
A potential buyer should always obtain a mortgage pre-approval letter as the first step in the home-buying process. Knowing the highest amount that you are willing and able to pay for a home is critical to saving time, heartache, and possibly money.  Getting pre-approved takes some time to gather the necessary documentation required by a lender and can be humbug if the information is not readily accessible in online accounts or if it is not stored in a file.  However, the time it takes to provide the lender with the necessary information can avoid wasting months of time and effort of finding a home and then learning that it is beyond your financial reach.
 
Before we get started with the importance of the mortgage pre-approval letter, lets first identify the difference between a pre-qualification letter and a pre-approval letter.  Most lenders can quickly provide a pre-qualification letter because the lender only needs your self-reported income and credit score to determine the mortgage you could qualify for based on the lender’s guidelines.  The key word in the previous statement is “could.”  Obtaining a pre-approval letter requires the lender to verify your actual income, your assets, and debts, pull your credit report, and compare those details against the lender’s guidelines.  While a pre-qualification letter informs a seller that you may qualify for a mortgage to provide the necessary financing if your income and debt ratio meets the guidelines, a pre-approval letter informs the seller that you do qualify for a mortgage provided that the property is structurally sound and appraises.
 
The most important reason to learn how much money you are willing and able to offer for a home is that finding the right home is an emotional journey as much as it is a decision-making process.   The disappointment of setting your heart on a dream home that you think you can buy and learn that is beyond your reach can be devastating enough to derail your home-buying goal.  How much harder is it to pull the trigger on a home that fits your needs at a price that you can afford if you continually compare it to some dream that is currently (not always) out of reach?  False hope can set people back farther than an initial dose of realism.  Acknowledge that emotions play a critical role in buying a home and complete the logical steps first to provide a successful financial framework from which to begin.
 
A pre-approval letter signals to the seller that you have done your homework, have your financial house in order, and are truly ready to buy the home.  Price, while important, is not the only consideration when a seller accepts an offer, particularly in a competitive bidding situation.  The seller has goals that selling the property helps achieve and those goals may have a deadline.  The seller may be willing to accept less for the property if they do have time constraints and a pre-approval letter can help give the seller confidence in your ability to close the deal in a timely manner.  A seller may require a higher price or may not accept your offer if they have some question concerning your ability to fulfill the contract.
 
You must provide all the information a lender requires and meet the lending guidelines before you receive a loan.  Why not save yourself some stress by getting these hurdles out of the way early on versus scrambling under the pressure that rapidly approaching deadlines create.  Decision making improves with a calm mind in most cases.  Set yourself up for success in the home-buying journey by getting pre-approved for a mortgage first.  

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